Tag Archives: Dow Jones

What might have come to be known as Black Tuesday 2008 (yesterday) was averted at the last minute, when Ben Bernanke and Company delivered a 3/4% cut to the overnight bank rate. Tuesday’s rate cut was the largest one-day rate cut ever by the U.S. Federal Reserve Bank.

As any great magician will tell you, timing is everything. The Federal Reserve waited until just before the markets opened Tuesday to announce the latest rate cut. Here at Routing By Rumor, we were way too conservative in our predictions for yesterday. We forecast the Dow dropping 200 points within the first hour of trading. In fact, the Dow dropped 464 points within minutes of opening. We predicted a loss of over 700 points on the day, which did not happen, thanks to the intervention by the Federal Reserve yesterday morning. The Dow lost just over 1% on the day, closing down 128 points. Not a good day, but much better than everybody was expecting, for a trading day that resembled nothing as much as a wild roller coaster ride. We have little doubt that had it not been for the Fed’s action yesterday morning, there would have been a bloodbath on the floor of the New York Stock Exchange yesterday, just as there was on world markets earlier in the day. Instead, there was controlled bleeding, and a market that was touch-and-go all day.
That was a pretty big rabbit that Mr. Bernanke pulled out of his hat. He will only be able to pull that trick off a couple of more times before he is fresh out of rabbits. Then what? Mr. Bernanke’s rabbit arsenal reminds us of the bluff the United States pulled off in World War II. The dropping of atomic bombs on Hiroshima and Nagasaki prompted the surrender of Japan a few days later. Things might have turned out much differently, had the Japanese known that we used the only two atomic bombs we had. We were fresh out.

This is economic policy driven by crisis, rather than by plan. The Fed is putting out fires, rather than addressing the reasons why the U.S. economy is faltering. But the policies that are responsible for America’s economic problems are not controlled by Mr. Bernanke and his friends. There is little more he can do than loosen and tighten the tourniquet now and then.

Hear that giant sucking sound? We do. Ross Perot did, way back in the 1990’s when he was warning us about NAFTA. That’s the sound of jobs leaving the United States. I’ve written about the problem in this blog recently. As long as we are importing most of the goods we consume in America, our economy will continue to disintegrate right before our eyes, no magician necessary. Quick fixes and slight-of-hand will only work for so long.

So what’s ahead? Look for another wild ride when the markets open later this morning. The stock market futures are pointing to a 250 point drop on the Dow and a 35 point drop on the S&P this morning, Wednesday, 1/23/2008. Don’t look for any more rabbits, at least not for a while, despite hints by the Fed that another rate cut might come at their scheduled meeting next week. We view that as an attempt to maximize the mileage they get out of Tuesday’s rate cut. And even if we’re wrong about another rate cut, don’t expect another whopper. If there are any more rabbits in Mr. Bernanke’s hat, they’re likely to be a lot of smaller rabbits, rather than another 2 or 3 bunker busters.

….And the bad news keeps rolling in. Iraq, layoffs, foreclosures, energy prices, bankruptcies, inflation, unemployment, just to name a few. As the Bernanke effect starts to wear off, we believe the markets will trend lower in the days and months ahead. Expect to see a lot of volatility in the markets, similar to what occured yesterday.

Well, it looks like the market futures, the pundits, and of course, the financial gurus at Routing By Rumor (RBR) were right on the money, so to speak.

We are now a few minutes into the trading day, and the Dow Jones (DJIA) has lost more than 400 points within the first five minutes of trading! If that isn’t a freefall, it’s awfully close. Stocks have recovered slightly in the last couple of minutes, but the Dow is still down by more than 300 points.

The White House has just announced that perhaps an even more robust economic stimulus plan is needed. It looks like President Bush might actually be paying attention. Finally.

This is being posted at 5:30 AM ET (10:30 AM GMT) Tuesday Morning, 1/22/08. How have the world financial markets reacted to the United States’ proposed economic stimulus plan? Depending on who you listen to, it’s either “too little, too late”, or a case of “no good deed goes unpunished”.

The supercomputers here at RoutingByRumor (RBR) have been humming all night, crunching the numbers and running the simulations. Our analysts have been burning the midnight oil. We have even dusted off our Ouija boards and polished our slide rules.

Overnight, world markets have been dropping between 5% and 8%, suffering their largest one-day losses in 10 to 20 years. Dow Jones and S&P futures are down over 5%. The silver lining here is that oil is down to below $88.00 a barrel. Here’s what our RBR pundits are telling us…

We believe that the U.S. stock markets will suffer historic losses when they open later today. We predict that the Dow Jones average will drop between 500 and 1,000 points (or between 4% and 8%) by the close of trading. We expect a 200 point drop in the first hour of trading. If you want to pin us down to a number, we predict a loss of 710 points, or nearly 6% on the Dow today.